Energy prices: Adding fuel to the fire

Energy companies argue that price hikes in the face of falling oil prices are unavoidable. After speaking to key players on both sides of the argument, Rebecca Kincade concludes that price rises are here to stay

It feels as if every week we are hearing about yet another energy company announcing ‘unavoidable’ price increases. These soaring costs are hitting domestic and business customers hard and a report from the Department of Energy and Climate Change has found that the average energy bill in Northern Ireland is often double that of the highest in the rest of the UK.

With the recent reduction in crude oil costs, bills were expected to reflect this drop, yet frustrations are now growing as quite the opposite seems to be happening.

I wanted to find out how ‘unavoidable’ these cost rises really are, what is driving our rates higher and what is in store for the energy market over the next few months.

At the end of September, Firmus Energy said they were to increase tariffs by more than a third for the Greater Belfast area. The company, which has around 3,000 business customers in NI, described the move as “regrettable”. It was later accused of a lack of transparency surrounding their pricing promises.

Mark Prentice, the managing director of Firmus Energy, insisted that they were forced into this decision. “The increase resulted from higher costs for wholesale gas and for transporting the gas through pipes. Neither of these factors could have been avoided. The possible full impact of the increase was reduced because we had bought some of the gas in advance. The last time we reviewed our prices, in September 2010, the oil price was below $80. Even with the recent falls, it is still above $100.”

He went on to tell me that oil is not the only driver of wholesale gas prices. The tsunami in Japan and the related closure of some of its nuclear plants has resulted in liquefied natural gas cargos that would have come to Europe being diverted to the Far East, increasing costs further.

“Northern Ireland faces additional costs to the rest of the UK because the gas has to be transported from the GB mainland and distributed using relatively new networks. The costs of the network operators are regulated by the Utility Regulator though periodic price controls.”

Mr Prentice said price rises across the industry were justified, however, he also noted: “If our competitors Phoenix Supply reduce their prices, then we will follow suit.”

In NI, consumers are at the mercy of a lack of competition between energy companies.

Antoinette McKeown, chief executive of the Consumer Council is calling on the NI Executive to urgently tackle the growing problem of energy prices. She would like to see greater regulation to force price transparency and provide greater support for customers.

“Belfast is often the most expensive area for fuel, and yet it has the greatest number of suppliers. There is now a greater need for intervention by the Government to address these prices before we see further damage to businesses and households.”

Where gas is concerned, the coming months will be telling. Should the world slip back into recession, it is expected that rates will drop lower but, in any other circumstances, the growing economies of China and India are likely to drive costs higher as they demand further resources.

Power NI supply electricity to around 30,000 business customers. Alan Egner, its business sales and marketing manager, said the company is doing its best to provide tariff systems designed to help business customers with energy bills:

“Power NI have a range of tariffs that can help businesses save money. For example, if you use electricity mainly in the evening and at weekends then you could save up to 15% by switching to the ‘weekender’ tariff. If you have lots of refrigeration then you could save up to 10% by switching to ‘nightsaver’.”

“The majority of our electricity is generated using gas and since 2009, when we last reviewed our prices, we have been faced with steadily rising generation costs and could not hold our prices any longer.”

Mr Egner said the location of Northern Ireland and its small energy market are responsible for its higher tariffs compared to the rest of the UK.

“The electricity market here is fairly small and we do not benefit from the economies of scale that exist in the GB market. Northern Ireland is also more remote from the main fuel sources and we all pay a premium for it having to travel further to reach us.”

Given market conditions, Mr Egner does not expect a cut in energy bills anytime soon.

“The earthquake and tsunami in Japan, upheaval in the Middle East and the fast-increasing needs of the Asian economies have all had an impact on the global demand for fuel and its price on the world markets. The UK and Ireland are also increasingly exposed to such instability because of our growing reliance on imported fuels.”

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